Monday, October 20, 2008

Scholes on financial regulation

Economic theory suggests that financial innovation must lead to failures. And, in particular, since successful innovations are hard to predict, the infrastructure necessary to support innovation needs to lag the innovations themselves, which increases the probability that controls will be insufficient at times to prevent breakdowns in governance mechanisms. Failures, however, do not lead to the conclusion that re-regulation will succeed in stemming future failures. Or that society will be better off with fewer freedoms. Although governments are able to regulate organisational forms, they are unable to regulate the services provided by competing entities, many yet to be born. Organisational forms change with financial innovations. Although functions of finance remain static and are similar in Africa, Asia, Europe and the United States, their provision is dynamic as entities attempt to profit by providing services at lower cost and greater benefit than competing alternatives.

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About Me

I am a student in economics. This is not to say that I'm only interested in money supply, interest rates, or exchange rates. We care about all of the things that non-economists care about - we just see them in a unique way. I am also an Indonesian - which also doesn't mean I only care about Indonesian affairs. I was just born that way.